Jeffrey R. Campbell

The Role of Collateralized Household Debt in Macroeconomic Stabilization

A novel method of reclaiming cured polyurethane elastomers comprises milling particulate cured polyurethane elastomer under shear sufficient to increase the temperature of the elastomer for a time sufficient to form the elastomer into a cohesive mass and then continuing the milling at elevated temperature and pressure in the presence of a selected devulcanizing agent until a uniform, continuous, cohesive, partially devulcanized product is obtained. The novel product has properties which are improved over those of the cured starting material including improved heat resistance, abrasion resistance and tensile strength.

Macroeconomic Effects of Federal Reserve Forward Guidance

A large output gap accompanied by stable inflation close to its target calls for further monetary accommodation, but the zero lower bound on interest rates has robbed the Federal Open Market Committee (FOMC) of the usual tool for its provision. We examine how public statements of FOMC intentions—forward guidance—can substitute for lower rates at the zero bound. We distinguish between Odyssean forward guidance, which publicly commits the FOMC to a future action, and Delphic forward guidance, which merely forecasts macroeconomic performance and likely monetary policy actions. Others have shown how forward guidance that commits the central bank to keeping rates at zero for longer than conditions would otherwise warrant can provide monetary easing, if the public trusts it. ; We empirically characterize the responses of asset prices and private macroeconomic forecasts to FOMC forward guidance, both before and since the recent financial crisis. Our results show that the FOMC has extensive experience successfully telegraphing its intended adjustments to evolving conditions, so communication difficulties do not present an insurmountable barrier to Odyssean forward guidance. Using an estimated dynamic stochastic general equilibrium model, we investigate how pairing such guidance with bright-line rules for launching rate increases can mitigate risks to the Federal Reserve’s price stability mandate.

Welfare implications of the transition to high household debt

Aggressive deregulation of the mortgage market in the early 1980s triggered innovations that greatly reduced the required home equity of U.S. households. This allowed households to cash-out a large part of accumulated equity, which equaled 71 percent of GDP in 1982. A borrowing surge followed: Household debt increased from 43 to 62 percent of GDP in the 1982- 2000 period. What are the welfare implications of such a reform for borrowers and savers? This paper uses a calibrated general equilibrium model of lending from the wealthy to the middle class to evaluate these effects quantitatively.

The Chicago Fed DSGE Model

The Chicago Fed dynamic stochastic general equilibrium (DSGE) model is used for policy analysis and forecasting at the Federal Reserve Bank of Chicago. This article describes its specification and estimation, its dynamic characteristics and how it is used to forecast the US economy. In many respects the model resembles other medium scale New Keynesian frameworks, but there are several features which distinguish it: the monetary policy rule includes forward guidance, productivity is driven by neutral and investment specific technical change, multiple price indices identify inflation and there is a financial accelerator mechanism.

The Dynamics of Work and Debt

This paper characterizes the labor supply and borrowing of a household facing collateral requirements that limit its debt and compel it to accumulate equity in its durable goods stock. The households discount rate exceeds the market rate of interest, so it would otherwise finance increased current consumption by borrowing against future wages. Collateral constraints generate a positive comovement between the households debt, the stock of durable goods and labor supply following wage or interest rate shocks---as the households labor supply adjusts to finance downpayments on new durable good purchases and the subsequent debt repayment. Increasing the speed of debt repayment amplifies these movements.

Very Simple Markov-Perfect Industry Dynamics

This paper develops an econometric model of industry dynamics for concentrated markets that can be estimated very quickly from market-level panel data on the number of producers and consumers using a nested fixed-point algorithm. We show that the model has an essentially unique symmetric Markov-perfect equilibrium that can be calculated from the fixed points of a finite sequence of low-dimensional contraction mappings. Our nested fixed point procedure extends Rusts (1987) to account for the observable implications of mixed strategies on survival. We illustrate the models empirical application with ten years of County Business Patterns data from the Motion Picture Theaters industry in 573 Micropolitan Statistical Areas. The results are suggestive of fierce competition between theaters in the market for film exhibition rights.

Forward Guidance and Macroeconomic Outcomes Since the Financial Crisis

This chapter studies the effects of FOMC forward guidance. We begin by using high-frequency identification and direct measures of FOMC private information to show that puzzling responses of private-sector forecasts to movements in federal funds futures rates on FOMC announcement days can be attributed entirely to Delphic forward guidance. However, a large fraction of futures rates’ variability on announcement days remains unexplained, leaving open the possibility that the FOMC has successfully communicated Odyssean guidance. We then examine whether the FOMC used Odyssean guidance to improve macroeconomic outcomes since the financial crisis. To this end we usean estimated medium-scale New Keynesian model to perform a counterfactual experiment for the period 2009:Q1–2014:Q4, in which we assume the FOMC did not employ any Odyssean guidance and instead followed its reaction function from before the crisis as closely as possible while respecting the effective lower bound. We find that a purely rule-based policy would have delivered a shallower recession and kept inflation closer to target in the years immediately following the crisis than FOMC forward guidance did in practice. However, starting toward the end of 2011, after the Fed’s introduction of “calendar-based” communications, the FOMC’s Odyssean guidance appears to have boosted real activity and moved inflation closer to target. We show that our results do not reflect Del Negro, Giannoni, and Patterson’s (2015) forward-guidance puzzle.

Very Simple Markov-Perfect Industry Dynamics: Empirics

This paper develops an econometric model of firm entry, competition, and exit in oligopolistic markets. The model has an essentially unique symmetric Markov-perfect equilibrium, which can be computed very quickly. We show that its primitives are identified from market-level data on the number of active firms and demand shifters, and we implement a nested fixed point procedure for its estimation. Estimates from County Business Patterns data on U.S. local cinema markets point to tough local competition. Sunk costs make the industrys transition following a permanent demand shock last 10 to 15 years.

Oligopoly Dynamics with Barriers to Entry

This paper considers the effects of raising the cost of entry for potential competitors on infinite-horizon Markov- perfect industry dynamics with ongoing demand uncertainty. All entrants serving the model industry incur sunk costs, and exit avoids future fixed costs. We focus on the unique equilibrium with last- in first-out expectations: a firm never exits before a younger rival does. When an industry can support at most two firms, we prove that raising barriers to a second producer’s entry increases the probability that some firm will serve the industry and decreases its long-run entry and exit rates. In numerical examples with more than two firms, imposing a barrier to entry stabilizes industry structure.

Entry, Exit, and Technological Progress in Markov-Perfect Duopoly

This paper establishes the existence and uniqueness of an intuitively-refined Markov-Perfect Equilibrium in a richly-specified dynamic duopoly model of entry and exit. We develop an algorithm that computes it very quickly, which makes the model useful for experiments that use many parameter configurations. Researchers can parametrize the sunk costs, technological development process, demand process, and product market competition to suit a particular policy analysis.